Investor OKs expected for Alpha buy; Emulex stock up on bid gamble; Blockbuster unease spreads

By Cristal Cody

Tupelo, Miss., May 15 -Alpha Natural Resources, Inc.'s acquisition of Foundation Coal Holdings, Inc. should close in line with company expectations by September since investors and regulators are expected to clear the transaction, an analyst said Friday.

Also on Friday, Emulex Corp. urged shareholders to reject Broadcom Corp.'s hostile tender offer of $764 million, or $9.25 per share, while the company's stock trades up in anticipation of a higher bid, an analyst told Prospect News.

Looking ahead, going-concern worries could prove a factor for Blockbuster Inc. in 2010, an analyst said Friday.

Meanwhile on Wall Street, investors pulled gains and sent stocks down for the close on Friday.

The Dow Jones Industrial Average lost 62.68 points, or 0.75%, to end at 8,268.64.

The Standard & Poor's 500 index dropped 10.19 points, or 1.14%, to 882.88, and the Nasdaq Composite index fell 9.07 points, or 0.54%, to close at 1,680.14.

Foundation Coal on track

Alpha and Foundation Coal plan to combine to form a new coal company in an all-stock deal valued at $2 billion, which includes about $530 million of Foundation Coal debt.

Under the terms of the agreement, Foundation Coal shareholders will receive 1.084 shares of the new company for each share of Foundation Coal, which values the stock at $32.73 a share.

"We regard the merger terms as fair, although not overwhelmingly attractive for either party," an analyst said Friday. "On the downside, Alpha shareholders will lose their net cash position by assuming Foundation debt and could appear less attractive as a bid target."

Shareholders are expected to vote in favor of the deal and antitrust issues are unlikely, the analyst said.

"The areas in which Foundation and Alpha will increase their concentration [in] Central Appalachia remain relatively fragmented," the analyst said. "The terminated merger of Alpha with Cleveland-Cliffs received early termination of HSR, despite creating the largest producer of metallurgical coal in North America."

Alpha had agreed to a $2.7 billion buyout in 2008 by Cleveland-based iron ore producer Cliffs Natural Resources Inc., but the deal fell apart over a Cliffs Natural investor's objections.

Linthicum Heights, Md.-based Foundation Coal produces thermal coal from mines and facilities in Pennsylvania, West Virginia and Wyoming.

Abingdon, Va.-based Alpha is the nation's largest supplier of metallurgical coal to the steel industry.

Foundation Coal's stock slid $1.26, or 4.48%, to close Friday at $26.88.

Alpha shares dropped $1.24, or 4.64%, to close at $25.46.

Arbs play on Emulex

Broadcom first announced its takeover offer for Emulex on April 21.

The Irvine, Calif.-based semiconductor company launched a tender offer for Emulex on May 5. The tender offer expires on June 3.

Costa Mesa, Calif.-based Emulex said Friday in a statement that the tender offer is "grossly inadequate" for the data network storage maker and is "clearly timed to take advantage of Emulex's depressed stock price."

Samuel Wilson, an analyst with JMP Securities LLC, told Prospect News on Friday that the $9.25-a-share offer already is a fair value for Emulex.

"They're clearly hoping that to avoid a proxy fight, Broadcom spends a few more dollars and buys it for that," he said. "The stock is trading above the bid price, so arbs think there's a potential higher bid coming."

Emulex shares rose 3 cents, or 0.28%, to close at $10.66 on Friday. The stock has traded from $4.53 to $14.74 over the past year.

Broadcom's stock lost 15 cents, or 0.71%, to $20.83.

Market unsure of Blockbuster

Blockbuster said in its 10-Q filing with the Securities and Exchange Commission on Friday that to reduce its liquidity risk, the company plans to divest some non-core assets, including international operations; restructure or re-engineer the company and processes to reduce operating costs; and explore options such as offering additional equity securities.

"In order to reduce our exposure to liquidity risk, we have embarked on a cash management strategy to enhance and preserve as much of our liquidity as possible," the company said in the filing.

The Dallas-based movie rental chain said Thursday it recorded first-quarter earnings of $27.7 million, or 12 cents a share, down from the $45.4 million, or 20 cents a share, in the same period last year.

Revenue fell to $1.12 billion in the first quarter from $1.39 billion a year ago.

"We completed the funding of the $250 million amended and extended credit facility in May 2009," Blockbuster said in the 10-Q. "Our new financing, combined with our cost savings initiatives and additional cash availability, provides sufficient liquidity to continue our business transformation."

Stacey Widlitz, an analyst with Pali Capital Inc., said in a research note on Friday that a poor DVD release schedule and cost-cutting initiatives hurt Blockbuster's sales.

Blockbuster also faces growing competition pressure from mail-order movie rental company Netflix, Inc.

"We believe that cost cuts and other liquidity enhancement will be enough to ensure its liquidity throughout 2009," Widlitz said of Blockbuster. "However, 2010 remains a major concern for us, with $397 million of payments due."

Blockbuster's stock shed 28.07% to close Friday at 82 cents, down 32 cents. Shares have traded from 13 cents to $3.55 over the past year.

Shares of Los Gatos, Calif.-based Netflix closed up $1.42, or 3.83%, at $38.50 on Friday.

Mentioned in this article:

Alpha Natural Resources, Inc. NYSE: ANR

Blockbuster Inc. NYSE: BBI

Broadcom Corp. Nasdaq: BRCM

Emulex Corp. NYSE: ELX

Foundation Coal Holdings, Inc. NYSE: FCL

Netflix, Inc. Nasdaq: NFLX

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